Adnoc signs up Shell for gas drilling

Abu Dhabi National Oil Company (Adnoc) and Royal Dutch Shell have signed a preliminary agreement to explore offshore for gas in Abu Dhabi in a development that could unlock significant new fuel supplies for the Gulf region's burgeoning industrial and power sectors. If finalised, the deal would be Shell's first in decades in the UAE's upstream oil and gas industry. Announced yesterday, on the eve of the region's biggest oil and gas exhibition and conference, it could also signify an important shift in government energy policy towards a greater degree of collaboration with foreign partners. The agreement may also amount to an admission by state-owned Adnoc that it needs to do more to develop energy supplies to satisfy surging domestic and regional needs. One possible new source of gas - a fuel in short supply in every Gulf state except Qatar - could be large undiscovered deposits lying deeply buried beneath Gulf oil fields. A search for such deposits off Qatar and Iran led to the discovery of the world's biggest gas field, North Field-South Pars, which the two countries share. An agreement to search for such gas "plays to our interests and technical capabilities", Malcolm Brinded, Shell's executive director of exploration and production, said yesterday on the sidelines of the Abu Dhabi International Petroleum Exhibition and Conference. He said Abu Dhabi's deep offshore gas deposits, if they existed, were most likely to be "tight gas", locked in fine-grained rock formations. Producing tight gas is one of Shell's technical specialities. In the Gulf region, the company is involved in such projects in Oman. This summer, it added significant tight gas reserves to its global portfolio with the acquisition of Canada's Duvernay Oil for 5.3 billion Canadian dollars (Dh16.29bn). But as well as being technically challenging, tight gas development requires large capital investment. That makes the UAE, with its robust financial resources, one of the best countries in the world in which to pursue such projects in the long term. Shell's most recent energy forecasts show that by 2035 the Middle East's annual energy demand could be 130 per cent higher than in 2000, when the region consumed the equivalent of 8 million barrels per day of oil, Mr Brinded told the conference. "Delivering all this extra energy will require huge financial investment," he said. "If there is one part of the world that can do it, it is the Middle East." Without significant investment in new gas projects, the region's energy crunch is likely to worsen. In terms of unmet global demand, "gas is the number one energy source", Ibrahim al Ansari, the general manager of Dolphin Energy, said yesterday. He said he doubted that the recent erosion of global oil demand would contribute to any softening of markets for liquefied natural gas (LNG). That, in turn, would make Qatar, the world's biggest LNG exporter, unlikely to supply more gas to Dolphin. The Abu Dhabi company supplies about 2 billion cubic feet per day (cfd) of Qatari gas, shipped through an undersea pipeline to customers in the UAE and Oman. Its efforts to persuade Qatar to increase the pipeline's throughput to its full 3.2 billion cfd capacity have been unsuccessful. Adnoc declined at a press conference yesterday to provide details of its "memorandum of understanding" with Shell. Earlier in the day, however, Ali al Jarwan, the general manager of Adnoc, chaired a conference session at which senior executives of the major international oil companies - Shell and BP, and Schlumberger, the world's biggest oil-field services company - called for international co-operation to stimulate oil and gas development worldwide. Without that, "another upwards spike" in oil prices could quickly emerge when the global economy recovered, said Tony Hayward, the chief executive of BP. "It is the global market which keeps the energy flowing," he said. Shell's association with Adnoc dates back to the 1970s when Adnoc formed partnerships with several foreign oil companies to produce oil and gas in Abu Dhabi. However, until Sunday Shell had failed to win any further deals with Adnoc. Earlier this year, it was passed over in favour of ConocoPhillips for a multibillion US dollar project to develop Abu Dhabi's Shah sour gas field. However, Shell has made significant recent progress in advancing its gas business in other parts of the Gulf. This summer, it signed a preliminary agreement with Iraq to capture and market gas produced from big oil fields in that country. tcarlisle@thenational.ae